Nashville Bar Association
Tennessee Bar Association
Vanderbilt Law School

Severance Agreements

Your employer has been presented you with a Severance Package. In addition to the fear and uncertainty of being terminated, you now have mere days to figure out what to do. You are happy about the prospect of money, but should you ask for more? Should you sign the agreement? What legal rights are you giving up? What binding promises are you making to the company? You need answers fast.

For a comprehensive overview of the severance process, including whether or not you should hire a severance attorney, click here to download The Masker Firm’s Ultimate Guide to Negotiating Your Severance Package. Below is an excerpt from the guide.

What is a Severance Package?

“Severance Package” usually refers to severance pay along with a severance agreement. A severance agreement is a contract between you and your employer that lays out the terms of your termination. Nearly all severance packages contemplate the same thing: In exchange for you releasing (aka waiving) your legal rights connected to the employment relationship, and making other binding promises, the company agrees to pay you exit money and benefits.

Why Do Employers Offer Severance Packages?

Put simply, employers offer severance packages to increase certainty and reduce the risk of future litigation. This makes smart business sense and is like a form of insurance. Often, employees do not even know they have viable legal claims against the company when they agree to waive all legal claims. This information asymmetry always benefits the employer.

Also, companies use severance pay as a hook to get a signed non-compete from you. You must consider the practical consequences of a non-compete provision on your future job prospects before signing. Sometimes a non-compete with a 20-mile radius has the practical effect of being a national non-compete in your particular industry.

The key question becomes whether the amount of pay and benefits offered is fair relative to your legal rights waived and promises made. In limited circumstances federal law or an employment contract requires severance pay to employees or executives.

How is Severance Pay Usually Calculated?

The amount of severance pay varies significantly depending on a host of factors, including the reason for your departure, length of your tenure, your position, size of the company, industry, and the severance agreement terms.

That said, severance pay usually falls within the range of 1-2 weeks of base salary per year of tenure, but only an experienced severance review attorney can properly assess the above factors as applied to your circumstances. Viable legal claims may significantly increase severance pay.

What is in a Typical Tennessee Severance Package?

You need to know exactly what is currently being offered. Severance agreements often contain the following key provisions. Keep in mind, every severance agreement is different and your agreement may differ from the terms below. We always recommend you consult an attorney when making legal decisions.

  • Separation/Severance Benefits. This states the severance pay you will receive if you sign the agreement. This is also sometimes referred to as “Consideration.” In simple terms, consideration just means that each party is giving up something as part of the agreement. In severance agreements, the company is giving up money, and you are waiving your legal rights. Severance pay is sometimes paid as a lump sum but is often paid out with regular payroll (which may delay your ability to draw unemployment benefits).
  • Benefits/COBRA. The benefits provision may be separate. It states the date your medical, dental and vision insurance will end. It reiterates that you will receive all required COBRA paperwork, and some companies may provide for company-paid subsidies for COBRA premiums. If your spouse can add you to his or her health insurance, consider asking for the COBRA premiums to be added to your severance pay.
  • Release/Waiver. This is what the company is paying for. The release must be made knowingly and voluntarily and generally includes a handful of required provisions. You are waiving your legal rights to all legal claims you may have against the company prior to the effective date of the agreement. Many waiver provisions list specific federal and state employment statutes. These release provisions tend to be well-worn and air tight. Never assume you can get a waiver reversed later (although it does happen in rare circumstances). The enforceability of a given release varies from statute to statute.
  • Cooperation. You agree to be available and to answer company questions regarding topics and projects you worked on if a dispute arises after your termination, e.g., litigation. Some companies will agree to pay you hourly compensation for such cooperation as well as your reasonable expenses. But you have to ask!
  • Non-Disparagement. You agree not to bad mouth the company or its employees (including management, officers, directors, etc.) to anyone regardless of whether or not the statement is truth. Best practice: do not talk badly about the company or former supervisors or co-workers to anyone.
  • Attorney’s Fees. Some of these provisions are written very broadly and require you to pay the company’s attorney’s fees, which could total well into six figures. Some go as far as to require you to pay for investigator fees even if you have not violated the agreement! Do not agree to such an overbroad provision. A fair attorney’s fees provision states the prevailing party gets his/her/its fees or that each party pays their own fees (aka the American Rule).
  • References/Inquiries. This is important, especially during your job hunt. This provision specifies what, if any, information the company can provide to future employers. Most employers limit such references to positions held, rates of pay, and length of tenure.

If you need help navigating your Severance offer, contact a Nashville employment lawyer at 615-823-1737 or for a free and confidential legal consultation.

Client Reviews
Curt really came through for me when a previous employer had reported my job title and hire dates incorrectly, he got it corrected within 12 hours of speaking to him about it! I would recommend him for any of your legal needs as he is quite efficient! Renee
Curt was very responsive from the beginning. He made it a very easy process, and he provided excellent guidance in the review of my severance agreement. Due, in part, to Curt's thoughtful suggestions in regards to changing some key language in the agreement that would protect both me and my former employer, they agreed to the changes. To protect yourself during job transition, a review of a severance agreement is a smart thing to do, and Curt will do an excellent job on your behalf. Thomas
Curt handled a case for me and did an unbelievable job in getting a resolution and a great settlement. I would highly recommend him to anyone. Teena